Cruise Line Industry

Industry Size

With an average of 9.5% annual growth rate, the world cruise industry is projected to worth$29.34 billion in 2011. Out of the $29.34 billion market, the North American cruise market accounts for $17.46 billion with the remaining $11.88 billion generated from the rest of the world. The following chart provides a detailed breakdown of the market size of the world cruise industry. As an important part of the U.S. economy, according to Cruise Line International Association (CLIA) the cruise industry created nearly 314,000 jobs in 2009, with its total economic benefit to the U.S. economy amounting to $35.1 billion. As can been seen from the following chart, the direct spending by cruise lines and passengers on U.S. goods and services are in billions (Datamonitor 4).

Source: Business Research and Economic Advisors

Industry Growth Prospect

As the fastest growing segment of the travel industry, the cruise market has achieved more than 2,100 percent growth since 1970. With an annual passenger growth rate of 7.67%, cruise industry will reach 21.6 million passengers worldwide in year 2014 (Gibson & Papathanassis 10). The prospect of industry growth is very strong based on the following factors:

Relatively low market penetration: only 19.9% of Americans have cruised and the current target market penetration rate is only 45%. As the industry develops and with proper marketing strategies, the potential customer base could well increase and the penetration rate has the potential to grow towards the range of 70%-80%.

Existence of strong market demand: nearly 51 million Americans have expressed their interest in cruising within the next three years, providing a strong momentum for the continuous development of the industry. The industry capacity growth, combined with sound marketing strategies on the other hand creates the demand itself and will further encourage the industry into flourish.

Exploration of new areas for growth: with over 50% of its revenues coming from the North American market (see Chart 1), the international market represents a huge potential that has yet to be explored. Moreover, the online potential of the cruise industry has remained mainly untapped, representing a new area of profitable growth.

Diversification of products and services: Over the past ten years, the industry has responded to a renewed consumer demand by providing value-added services such as more destinations, new ship designs, and diverse recreational activities, which brings additional revenues to the company and enhances the industry profitability.

Industry Profitability

With few leading players in the cruise industry and strong market demand, the cruise industry has been enjoying relatively high levels of profitability in the past few decades. The industry's profitability is expected to remain strong for the next ten years due to the following reasons:

Economies of scale drives costs down: fueled by the robust industry growth prospect, the industry has been expanding its capacity on a remarkable basis. The number of new and larger ships that are built has been increasing on a yearly basis. The economies of scale that are achieved by building mega-ships lowers the cost of sailing per passenger (DuPont 29).

Extended value chains include more diversified ...